Edwards, Inc. v. ARLEN REALTY DEVELOPMENT, Civ. A. No. 77-1844.

• Decision Date: 12 October 1978
• Docket Number: Civ. A. No. 77-1844.
• Citation: 466 F. Supp. 505
• Court: U.S. District Court — District of South Carolina
• Parties: EDWARDS, INC., Plaintiff, v. ARLEN REALTY AND DEVELOPMENT CORPORATION, Laurens Plaza, Inc., Independent Enterprises, Inc., Arlen Finance Corporation, Arlen Management Corporation and Cooper Carry & Associates, Inc., Defendants.

466 F. Supp. 505

EDWARDS, INC., Plaintiff, v. ARLEN REALTY AND DEVELOPMENT CORPORATION, Laurens Plaza, Inc., Independent Enterprises, Inc., Arlen Finance Corporation, Arlen Management Corporation and Cooper Carry & Associates, Inc., Defendants.

Civ. A. No. 77-1844.

United States District Court, D. South Carolina, Greenville Division.

October 12, 1978.

Donald A. Harper, Haynsworth, Perry, Bryant, Marion & Johnstone, Greenville, S. C., for plaintiff.

Vance B. Drawdy, John A. Hagins, Jr., Joseph M. Jenkins, Jr., Greenville, S. C., for all defendants except Cooper Carry & Associates.

Claude M. Scarborough, Jr., and Richard B. Watson, Columbia, S. C., for Cooper Carry & Associates.

ORDER ON DEFENDANTS' MOTION FOR SUMMARY JUDGMENT AND INVOLUNTARY JOINDER OF PARTIES

HEMPHILL, District Judge.

This is a diversity action brought pursuant to 28 U.S.C. § 1332 and commenced by filing of Complaint with the Clerk of Court on September 12, 1977. The plaintiff is a lessee of a building in the Laurens Plaza Shopping Center. Defendants are allegedly builder-designers, owners, and managers of the Shopping Center.

The Shopping Center was invaded by flood waters on October 9, 1976. Plaintiff alleges it had engaged in business at the subject location continuously from 1967 until October 1976 (with the exception of suspended business in September 1973 resulting from a prior flood) when the flood occurred, and that as a result of the same lost merchandise, fixtures and business, all to its damage. It now seeks damages based on theories that the premises were warranted and covenanted to be fit and suitable for the operations of its tenants, but was not, due to its propensity to flood. Edwards, Inc. alleges that defendants responsible for the development, design, building and maintenance of the Center were negligent, grossly negligent, reckless, willful and wanton in its development by failing to consider the flooding propensities of the area, and that the lease originally entered into between plaintiff and defendant, Laurens Plaza, Inc., has been breached in an express material particular: failure to provide adequate drainage facilities for rain and surface water.

At the time of the flood the contents of the building along with the loss due to business interruptions were insured by the National Flood Insurance Association (N.F. I.A.) for the first $100,000.00 of damage and First State Insurance Company (First State) for amounts in excess thereof.

Plaintiff has been compensated for loss of merchandise, fixtures and business interruptions resulting from the flood and accruing up through January 31, 1977. The insurers have been subrogated by way of agreement to the extent of the indemnity paid. However, Edwards was not compensated for its loss of business from February 1, 1977 through August 31, 1977, the period immediately preceding sale or assignment of all plaintiff's assets and liabilities.

The matter is now before the court on defendant, Arlen Finance Corporation's (A.F.C.) motion for summary judgment and all defendants' motion to join N.F.I.A. and First State, admittedly real parties in interest, as parties plaintiff.

With respect to defendants Laurens Plaza, Inc., Independent Enterprises, Inc., Arlen Management Corporation, and Cooper Carry & Associates, Inc., it should be noted that all were engaged in some capacity with the initial design, outlay and construction of the Laurens Shopping Center. It is the fruition of their efforts in light of what plaintiff alleges to be a knowledge on their part of the propensity of the situs of the Shopping Center to flood which gives rise to the alleged warranties and covenants that the premises were tenable and fit and suitable for operation of merchandising stores, and also the negligence, gross negligence, willful and wanton acts of inadequate investigation of the area to ascertain the flooding propensities, failure in construction to compensate therefor, and failure to warn of the flooding propensities of the area which give rise to these claims. Also asserted against these defendants are certain failures to repair and maintain the premises in order to prevent devastating flood damage.¹

Defendants Arlen Realty and Development Corporation and Arlen Finance Corporation stand on a somewhat different footing than the previously mentioned defendants. Plaintiff seeks to hold these two entities accountable for the damage done, not by virtue of direct participation in the original planning design and building of the Shopping Center, but due to their status as parties to certain agreements, and assignments and the attendant responsibilities thereunder. See allegation No. 13 of the Complaint.

Arlen Realty and Development Corporation does not press the propriety of its being joined as parties defendant to the action. However, Arlen Finance Corporation vehemently protests its continued status as a party defendant. It does so on the basis that it had had and does not have legally cognizable obligations or duties flowing to plaintiff. Its zealousness in pressing its motion for summary judgment is understandable in the light of the fact that its retention as a party defendant would preclude the joinder of First State as a party plaintiff, in that it and First State are both entities incorporated under the laws of the State of Delaware and are therefore non-diverse. See Virginia Electric & Power Co. v. Westinghouse Electric Corp., 485 F.2d 78 (4th Cir. 1973) cert. den. 415 U.S. 935, 94 S.Ct. 1450, 39 L.Ed.2d 493. By virtue of language in the Westinghouse case, granting of Arlen Finance Corporation's motion for summary judgment and the attendant removal of potential non-diversity would mandate the insurance companies' joinder as parties plaintiff. See, infra. In order to determine the meritoriousness of A.F.C.'s motion the court must explore the documents tying it to the Shopping Center and its status as the holder thereof.

A.F.C. was incorporated in Delaware on June 22, 1974 and authorized to do business in South Carolina on June 28, 1974. The corporation is passive in nature and was set up at the insistence of Chase Manhattan Mortgage and Realty Trust. (Chase) The purpose of incorporation of A.F.C. was to establish a separate entity operational as a financing vehicle to which Chase was to make a loan of approximately $16,000,000.00 and in which A.F.C. was to hold security for the loan and make payments on the same. The income source and the source of security for the loan were represented by various documents and rights thereunder flowing to A.F.C., which included an assignment of mortgages and long term leases to A.F.C. See deposition of Steven Turk, pp. 5-6, and 12-14.

Two documents assigned to A.F.C. for purposes of security and income source for payment of the Chase debt link A.F.C. to the Laurens Plaza Shopping Center. The first and more important of the two, indeed the only document seriously urged by plaintiff as placing legal responsibility on A.F.C., is a long term lease originally entered into between defendant Arlen Realty and Development Corporation and Rens Associates, a South Carolina limited partnership, entered into between the parties on May 31, 1972, leasing to Rens the lands on which the Shopping Center was built together with all site improvements situated thereon, which according to the agreement, included among other things parking lot drainage systems. See Exhibit A to affidavit of Augustus Stephas filed in support of A.F. C.'s motion for summary judgment. Arlen Realty and Development's interest as lessor under the lease was assigned to A.F.C. on July 12, 1974. (See Exhibit C to affidavit of Stephas.)

The second document assigned to A.F.C. tying it to the Laurens Plaza Shopping Center, and not seriously urged by plaintiff as establishing liability as against A.F.C. for the present claims, is a mortgage given by Rens Associates as mortgagor to Arlen Realty and Development as landlord-mortgagee obligating as collateral for a debt in principal sum of $1,650,000 all of Rens' interest in the leasehold estate established by the above referenced long term lease, together with buildings, structures and improvements other than site improvements situate on the land site of the Laurens Plaza Shopping Center. (See Exhibit D to affidavit of Stephas.) On the same date the mortgage was assigned by A.F.C. to Chase, consistent with A.F.C.'s posture as a passive financing entity for effectuation of the Chase loan previously referred to.

It is the lease assigned to A.F.C. and its status as assignee of the lease and the alleged duties accruing as assignee of the lease on the date of assignment which is urged by plaintiff as establishing at least possible legal responsibility for the flood damage beginning October 1976. A close inspection of the 80-page document representing the leasehold agreement and the assignment thereof is necessary.²

The long term lease here in question represents the growing popularity of such long term leasing devices in which the lessor is assured a handsome rate of return on his property, income and capital gains tax rate benefits and a shifting of the risk of development to the lessee who in turn leases space created by improvements on the land to tenants of its own. The lease in question grants Rens a leasehold interest of 20 years with the option to renew for 10 years three times consecutively. In return Rens is obligated to pay a certain fixed rental plus a percentage rental based on the amount of rent received by Rens from subtenants or other persons occupying the space and improvements on the demised premises.³

Any duties that A.F.C. assumed in its status as assignee of Arlen Realty and Development's interest in the lease aforementioned would accrue to A.F.C. as of the time of the assignment of the lease, July 12, 1974. It is clear that the common law claims asserted by plaintiff for the negligent, gross negligent, willful and wanton...